11 December 2012

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  • Today’s USDA report was initially viewed as “something and nothing” with first glance commentary suggesting it was slightly supportive to soybeans and products and possibly a touch bearish for wheat. Corn export figures were left unchanged to the surprise of many, with the January report now expected to carry the “big news”.
  • The aftershock came as speculative wheat long holders liquidated positions, particularly in the March ’13 contract, which has caused the wheat market to plummet dramatically (3.2%) to a five month low. The slight increase in 2012/13 US and world wheat end stocks as a consequence of reduced US export demand has been the trigger.
  • The strength of selling has been enough to drag corn and soybean markets along for the ride. However, we understand that consumer interest has been reasonably strong, particularly in soy products, partially saving the day.
  • From a technical perspective, specifically in CBOT wheat, the market looks set for further significant falls with some predicting close to $6.00/bu as the ultimate target. Prices fell below what was viewed as key technical support levels ($8.35 basis March ’13) as defined by Fibonacci retracement of the late summer price increases. Technical traders will be keen to sell such price breaks and protect prices from rising higher in a bear move. We find such lowly price levels extremely difficult to digest tonight given such a dramatic reaction to today’s figures, but remain vigilant to market developments.
  • Clearly, the effect on both London and Paris is likely to mirror the “big brother” in Chicago and little trend digression is expected in the short term.
  • The interesting sidelines sit with such detail as the wheat/corn spread which is now below $1.00 premium for wheat. The key issue being that major wheat exporters are struggling for stocks at this time and the season still has a long time to go. However, we must always be mindful of the old adage, “the market is always right” and “the market can remain irrational far longer than you or I can remain solvent”.
  • As a passing note, China added to their already considerable soybean stockpile with a further 115,000 mt purchase at the expense of a further reduction in already low US end stocks.
  • As always, markets continue to keep us on our toes, but this one could potentially cause us to pirouette (and even consider a “U turn”) unless we see consumer support emerging to bolster, slow and reverse this price decline in short order. We watch with extreme interest in the coming days.